Chapter Three Test Bank Multiple Choice Questions

1. The General Fund

a. is used to account for all financial resources that are not restricted to specific
purposes or otherwise required to be accounted for in another fund.
b. is used by all governments that report governmental fund activities.
c. is established at inception of a government and exists throughout its life.
d. All of the above.
e. None of the above.
2. A Special Revenue Fund
a. is used to account for resources restricted for capital or debt service purposes.
b. must be used to account for all expandable restricted resources.
c. is not required except when its use is legally or contractually mandated.
d. must be used to account for all nonexpendable restricted resources.
3. The accounting equation for a special revenue fund is:
a. Assets Liabilities = Net Assets
b. Financial Assets Related Liabilities = Fund Balance
c. General Capital Assets Unmatured General Long-Term Liabilities = Net Assets
d. the same as accounting equation for the general fund.
e. Both a and d.
f. Both b and d.
g. None of the above.
4. Each of the following transactions would decrease fund balance in the General Fund
except
a. the purchase of capital assets.
b. the principal repayment of long-term debt.
c. depreciation.
d. salaries and wages.
e. All of the above would decrease fund balance in the General Fund.
5. The city of Green Hope levied property taxes of $1,000,000, 2% of which is expected to
be uncollectible. How much revenue should be recorded in the Revenues Subsidiary
Ledger as of the levy date?
a. $1,000,000
b. $ 980,000
c. $1,000,000 in the Revenues Subsidiary Ledger and $ 20,000 in the Expenditures
Subsidiary Ledger
d. No entry should be recorded in the Revenues Subsidiary Ledger until the taxes are
actually received.

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6. Ledford County levied property taxes of $10,000,000, 2% of which is expected to be

uncollectible. Prior to this new levy, the county still had $ 350,000 of uncollected taxes
from previous years. How much should be reported as Taxes Receivable after the new
levy has been recorded?
a. $10,000,000
b. $ 9,800,000
c. $10,350,000
d. $10,150,000
e. None of the above.
7. The city of Brittainvilles Special Revenue Fund levied $350,000 in taxes, of which 1%
was expected to be uncollectible during the current year. Also during the year, the fund
collected $ 7,500 of interest revenue and $ 50,000 was transferred from the General
Fund. As a result of these transactions fund balance will increase by
a. $407,500
b. $404,000
c. $357,500
d. $354,000
e. $400,000
8. General Fund expenditures for uncollectible accounts receivable should be reported in the
period that the receivable is
a. established.
b. written off as uncollectible.
c. legally due and payable.
d. None of the above
9. A new computer, which had been estimated to cost $28,000, was received. The actual
cost of the computer was $29,400. To record this in the special revenue fund,
a. the general capital assets account should be debited for $28,000.
b. expenditures should be debited for $28,000.
c. expenditures should be debited for $29,400.
d. tNone of the above.
10. If a General Fund purchases capital assets with cash, what effect will this transaction
have on the assets and fund balance, respectively, of the fund?
a. Neither assets or fund balance will change (the increase in capital assets will
offset the decrease in cash).
b. Both assets and fund balance will increase.
c. Both assets and fund balance will decrease.
d. Assets will not change but fund balance will increase.
e. Assets will increase and fund balance will decrease.

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11. If General Fund employees earn salaries during the year that have not been paid at year
end (accrued salaries at year end), they should be reported as expenditures
a. in the current year in all cases.
b. in the current year if paid within the first 60 days of the next year.
c. in the next year in all cases.
d. in either the current year or in the next year depending upon the government's
policy. The policy must be applied consistently.
12. $40,000 of General Fund expenditures had been paid for from and recorded in a Special
Revenue Fund. Upon discovery of this situation, $40,000 was paid from the General
Fund to the Special Revenue Fund. This transaction is recorded in the Special Revenue
Fund by debiting Cash and crediting
a. expenditures.
b. other financing sources in.
c. transfer in.
d. revenues.
13. Assume the General Fund borrows $50,000 from the Enterprise Fund. The interfund loan
is scheduled to be paid back in five years. Which of the following statements properly
characterize the reporting effects of this transaction on the General Fund?
a. The transaction will have no effect on General Fund fund balance.
b. The transaction will increase fund balance by $50,000.
c. The interfund loan, though long-term, should be reported as a General Fund
liability.
d. The interfund loan, because of its long-term nature, will not be reported as a
General Fund liability.
e. Both items a and c.
f. Both items b and d.
14. If an Enterprise Fund transfers $10,000 to the General Fund and the General Fund loans
$15,000 to an Internal Service Fund, the effect on the General Fund fund balance would
be
a. an increase of $10,000.
b. a net decrease of $5,000.
c. a decrease of $15,000.
d. a net increase of $5,000.
e. $0.
15. A city's police department receives goods from an Internal Service Fund. To record this
transaction the city should record a credit to what account in the General Fund?
a. Due to the Internal Service Fund
b. Advance from the Internal Service Fund
c. Vouchers payable
d. Reserve fund balance

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16. The citys central garage, which is accounted for as an Internal Service Fund, repairs and
maintains all of the citys vehicles. The fire department is accounted for in the General
Fund. The Central Garage Internal Service Fund sends a bill to the fire department for
$18,000, which represents the cost of maintaining fire trucks for the month. The Central
Garage should record:
a. a debit to Due from General Fund for $18,000.
b. a credit to Due to General Fund for $18,000.
c. an expenditure for $18,000.
d. a revenue for $18,000.
e. Both b and c.
f. Both a and d.
17. A city's General Fund provides a two-year loan to the Internal Service Fund. To record
this transaction the city should record a debit to what account in the General Fund?
a. Due from the Internal Service Fund
b. Advance to the Internal Service Fund
c. Advance from the Internal Service Fund
d. Transfer to the Internal Service Fund
18. A local school district issued a short-term note payable to purchase $500,000 of
recreation equipment. The note will be repaid with General Fund resources. The General
Fund would report
a. expenditures of $500,000.
b. a capital asset of $500,000 and a note payable of $500,000.
c. a note payable of $500,000.
d. a capital asset of $500,000.
e. expenditures of $500,000 and revenues of $500,000 from issuance of the note.
f. Both items a and c.
19. In governmental funds, governments must accrue interest on
a. general long-term debt.
b. general long-term debt, if the interest is paid in the first 60 days after year end.
c. short-term debt of the fund.
d. short-term debt of the fund, if the interest is paid in the first 60 days after year
end.

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20. A city acquired a dump truck for general government usage. The government paid
nothing down and signed a 10%, short-term note payable for the price of the truck,
$80,000. The note will mature in the next fiscal year. What items should appear in the
statement of revenues, expenditures, and changes in fund balance for the General Fund in
the year the truck was purchased?
a. Capital outlay expenditures of $80,000, but no interest.
b. Interest expenditures on the note, but no capital outlay expenditures since nothing
was paid.
c. Capital outlay expenditures of $80,000 and interest expenditures on the note.
d. Depreciation expenses (depending on the estimated useful life of the truck) and
interest expenditures on the note.
21. Taxes receivable of $80,000, which have a related allowance for uncollectible taxes of
$8,000, become delinquent. The entry to record this includes a debit to
a. Taxes ReceivableCurrent.
b. Allowance for Uncollectible Current Taxes.
c. Allowance for Uncollectible Delinquent Taxes.
d. Revenues.
e. None of the Above.
22. Accounts receivables are determined to be uncollectible. The following account should
be debited:
a. Bad Debt Expense.
b. Revenue.
c. Allowance for Uncollectible Accounts Receivable.
d. Accounts Receivable.
e. None of the above.
23. Which of the following should not be accrued as expenditures in a governmental fund at
year end?
a. Salaries earned by employees but not paid.
b. Repair work performed by contractors, but not completed.
c. Interest incurred on short-term debt, but not yet due.
d. Interest incurred on long-term debt, but not yet due.
24. What effect would outstanding purchase orders have on the fund balance of a Special
Revenue Fund?
a. Reserved fund balance would include the value of the outstanding purchase
orders.
b. Designated fund balance would include the value of the outstanding purchase
orders.
c. Unreserved fund balance would include the value of the outstanding purchase
orders.
d. Outstanding purchase orders have no effect on how fund balance is reported.

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25. Assume the General Fund has two outstanding investments as of its 6/30/X5 year end, as
follows:
$100,000 Certificate of Deposit, 6 month original maturity, 3% annual
interest rate, purchased 4/30/X5
$500,000 Commercial Paper, 8 month original maturity, 3% annual
interest rate, purchased 1/31/X5
The interest revenue that would be recorded in the GAAP-based external financial
statements for the General Fund as of 6/30/X5 would be
a. $0 interest revenue is not recorded until actually received.
b. $ 500
c. $ 6,250
d. $ 6,750
e. $11,500
26. The General Fund had the following transactions during the month of June:
Took delivery of 10 new patrol cars that had been ordered and encumbered the
previous month total costs $270,000
Issued purchase orders totaling $25,000 for various supplies
Issued payroll checks in the amount of $110,000
Various other short term liabilities were incurred in the amount of $1,500
Expenditures in the General Fund for the month of June would be
a. $381,500
b. $111,150
c. $ 25,000
d. $136,500
e. None of the above.
27. Assume a citys General Fund has $75,000 of inventory, $600,000 of long-term loans
receivable, $250,000 long-term loans due from other funds, and $1,900,000 of
investments. Based solely on this information, the citys reserved fund balance would be
a. $925,000
b. $600,000
c. $1,900,000
d. $675,000
e. $850,000
f. either item a or c.

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28. The Special Revenue Fund of the city of Wakefield ended its fiscal year with revenues of
$750,000, other financing sources of $ 50,000, and expenditures of $725,000. The
closing entry in the Special Revenue Fund would be
dr
a. Expenditures
Net profit
Revenues
Other Financing Sources
b. Expenditures
Other Financing Uses
Revenues
Other Financing Sources
c. Expenditures
Unreserved Fund Balance
Revenues
Other Financing Sources
d. Revenues
Other Financing Sources
Expenditures
Other Financing Uses
e. Revenues
Other Financing Sources
Expenditures
Unreserved Fund Balance

cr

$ 725,000
75,000
$ 750,000
50,000
$ 725,000
75,000
$ 750,000
50,000
$ 725,000
75,000
$ 750,000
50,000
$ 750,000
50,000
$ 725,000
75,000
$ 750,000
50,000
$ 725,000
75,000

29. Hannah County has a total fund balance in the General Fund as of the end of the year of
$1,565,000. Assume the following:
The budget officer has indicated there is $405,000 available for
appropriation that has not been restricted or designated.
Unspent drug enforcement grant proceeds remained of $75,000
Outstanding purchase orders totaled $ 41,000
The countys governing board has earmarked $500,000 for anticipated
increases in liability insurance premiums.
In the year-end financial statements, Hannah County would report reserved fund balance
and unreserved fund balance, respectively, in the General Fund as
a. $ 75,000 reserved fund balance; $405,000 unreserved fund balance
b. $575,000 reserved fund balance; $405,000 unreserved fund balance
c. $116,000 reserved fund balance; $905,000 unreserved fund balance
d. $116,000 reserved fund balance; $405,000 unreserved fund balance
e. $616,000 reserved fund balance; $405,000 unreserved fund balance

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30. Which of the following is not an appropriate use of a fund balance reserve?
a. To report amounts loaned to another fund for more than one year.
b. To indicate that the finance director is setting aside a substantial amount of
resources for a special project.
c. To report the expected costs of orders outstanding at year-end that are to be filled
in the next fiscal year.
d. To indicate that a portion of fund net assets is not available to be used to finance
next year's expenditures.
31. Which of the following is an appropriate use of a fund balance reserve?
a. To report the amount of capital assets acquired during the year.
b. To indicate that the finance director is setting aside a substantial amount of
resources for a special project.
c. To report the expected costs of orders outstanding at year-end that are to be
filled in the next fiscal year.
d. To report the amount of long-term debt that will mature in the next 12 months.
32. Fund balance may be designated when
a. management determines that a portion of unreserved fund balance should be
set aside for the construction of a new fire station.
b. the city council determines that a portion of reserved fund balance should be set
aside for construction of a new fire station.
c. management believes unrestricted fund balance should be set aside for the
construction of a new fire station.
d. None of the above.
33. Which of the following events could potentially qualify for reporting as an extraordinary
item?
a. A city government sells city hall.
b. City Hall is hit by lightening and is significantly damaged by fire.
c. The city offers employees an early retirement incentive package and 15
employees accept the offer.
d. All of the above items would be reported as an extraordinary item.
e. Items a and c only.
34. The city of Trixie reports in their General Fund a $ 505,000 special item (a gain) and a
$1,750,000 extraordinary loss in the same year. Which of the following statements would
be false?
a. Fund balance would decrease $1,245,000.
b. The extraordinary loss and the special item should be reported separately on the
face of the Statement of Revenues, Expenditures, and Changes in Fund Balance.
c. Fund balance would increase by only $505,000.
d. Fund balance is not affected by special items or extraordinary gains or losses.
e. Items a and b are both false.
f. Items c and d are both false.

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35. The following information pertains to the Scott County General Fund:
Expenditures
14,800,000
Revenues
14,200,000
The change in Scott County's General Fund fund balance for the year is
a. a $1,600,000 decrease.
b. a $600,000 decrease.
c. a $400,000 increase.
d. a $1,000,000 decrease.
36. The following information pertains to the Richardson County General Fund:
Expenditures
12,800,000
Revenues
9,200,000
Long-term note issue proceeds
1,000,000
Short-term note principal retirements
250,000
Operating transfers to other funds
75,000
The change in Richardson County's General Fund fund balance for the year is
a. a $2,600,000 decrease.
b. a $2,675,000 decrease.
c. a $2,925,000 decrease.
d. a $3,600,000 decrease.
e. a $3,675,000 decrease.
37. A government levies property taxes of $2,500,000, 1% of which are expected to prove
uncollectible. The property taxes should be reported in the General Fund statement of
revenues, expenditures, and changes in fund balances as
a. revenues of $2,500,000 and expenditures of $25,000.
b. revenues of $2,500,000 and other financing uses of $25,000.
c. revenues of $2,475,000 and no expenditures or other financing uses.
d. other financing sources of $2,500,000 and expenditures of $25,000.
38. Which of the following does not affect the "Excess of Revenues over Expenditures"?
a. Purchase of capital assets
b. Incurring and paying salaries
c. Property taxes levied and collected in the year
d. Transfers from Enterprise Funds
39. Which of the following would be classified as Other Financing Sources (Uses)?
a. Purchase of capital assets
b. Proceeds from the issuance of 6-month notes payable
c. Transfers from an Internal Service Fund
d. All of the above

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40. Which of the following should be reported in the statement of revenues, expenditures,
and changes in fund balance of a General Fund?
a. A short-term loan to another governmental fund.
b. A long-term loan to another governmental fund.
c. A short-term loan to a proprietary fund.
d. None of the above.
41. For a transaction to be classified as an extraordinary item it must be
a. unusual in nature.
b. infrequent in occurrence.
c. under the control of management.
d. Both items a and b
42. For a transaction to be classified as a special item it must be
a. unusual in nature and infrequent in occurrence
b. unusual in nature or infrequent in occurrence.
c. under the control of management.
d. Both items b and c
43. Expenditures may be classified for accounting purposes by
a. fund.
b. function.
c. organizational unit.
d. activity.
e. object class.
f. all of the above.

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